Do you know these 10 property insurance terms? Do your clients?

Do you know the meaning of barratry or bumbershoot?

By Rosalie L. Donlon|April 16, 2015 at 06:53 AM

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Whether you’re new to insurance or you’ve been in the business a long time, there may be some insurance terms that you haven’t heard before. In some cases you may have heard them but you aren’t completely certain of what they mean.

We’ve gathered some of those terms here along with their definitions. We invite you to add unusual terms you’ve encountered to this list in the comment section.

Captive Insurance Company. You may have heard of a “captive” insurance company, but you may not be completely clear on the definition. Generally, a captive insurance company is one that is owned and controlled by its shareholders; the policyholders and the shareholders are one and the same. Using a captive can be a form of self-insurance for some companies.

Did you know that there are subcategories of captive insurers as well? For example, you could be doing business with one of the following:

Association Captive. This is a group captive formed by or under the auspices of a particular group or association designed to provide insurance to members of the association.

Rent-a-Captive. This refers to a captive insurer that is not owned by its members but by an unrelated third party. Rent-a-captives provide the core capital, usually the domicile’s minimum, and require members to capitalize their own risk. They are “one-stop shops” in that they provide fronting, reinsurance, administration, and claims handling services.

Cell Captive. A cell captive is a multi-participant rent-a-captive that maintains legally separated participant accounts. While rent-a-captive members’ accounts are separated only by contract, cell captives have a legally defined separation.

Direct-Writing Captive, This kind of captive insurance company issues insurance policies directly to its policyholders without the use of a fronting insurer.

Reinsurance Captive. With a reinsurance captive, the fronting insurer cedes reinsurance to the captive, issues the policies, and makes the appropriate regulatory filings.

Retrocession. This term refers to reinsurance of reinsurance, that is, when reinsurance companies cede risk to other reinsurance companies. A reinsurer that reinsures other reinsurers is called a “retrocessionaire.”

Sidecar. No, we’re not talking about motorcycles or drinks here. In insurance terms, a sidecar is a special purpose vehicle designed to assume certain catastrophic property risks, such as earthquake or hurricane, from a specific reinsurer. Sidecars are short-term investment vehicles created to take advantage of high catastrophic insurance rates. They’re set up for a short period of time, and when rates are low they’re not set up at all.

Barratry. This little-known term refers to severe misconduct by the captain or crew of a ship, including fraudulent and criminal acts that cause loss or damage to the ship or its cargo. This is usually some kind of fraud or theft, but not piracy.

Bumbershoot. This may sound like the word used for an umbrella a British novel from the 1920s. For insurance purposes, though, the term actually means an excess liability coverage for insureds with major wet marine exposures, also referred to as ocean marine exposures. The policy covers both nonmarine and maritime liability exposures—that is, protection and indemnity, general average, collision, sue and labor, and general liability hazards.

Bobtail liability. Although this term may have you thinking of a cat with a genetically short tail, the term applies to auto liability coverage for an owner/operator after a load has been delivered and while the truck is not being used for trucking purposes. This usually occurs when owner/operators use the truck to get from one location to the other (on the way home, for example), and not in the course of transporting property for the motor carrier under whose operating authority they haul, and on whose liability policy they depend while they are engaged in trucking.

Hard fraud involves the staging of an accident or other form of a claim. It’s intentional and well planned, often with connections to organized crime.

Soft fraud, also known as “build up,” is more opportunistic, involving insureds or claimants who will pad an otherwise legitimate claim. This can be anything from burying a deductible to running up medical bills in hopes of inflating pain and suffering awards. In some cases, claimants have gone so far as to obtain needless surgeries to maximize the value of their claim.

Source: Christopher Tidball, an executive claims consultant and the author of multiple books including Re-Adjusted: 20 Rules to Take Your Claims Organization from Ordinary to Extraordinary! and his latest book, Swoop & Squat.

Alien insurance company. This doesn’t refer to an insurance company from another planet. It refers to one that is incorporated under the laws of a foreign country, as opposed to a “foreign” insurance company which does business in states outside its own.

Inland marine insurance. This sounds as though it would cover ships moving cargo on inland waterways, like rivers, but it doesn’t. This broad type of coverage was developed for shipments that don’t involve ocean transport. It covers articles in transit by all forms of land and air transportation as well as bridges, tunnels and other means of transportation and communication. Floaters that cover expensive personal items such as fine art and jewelry also are included in this category.